CALGARY — North America’s largest pipeline company, Enbridge Inc., is boosting capacity by as much as 100,000 barrels per day by the middle of next year and reviewing how it operates its flagship oil pipeline to help alleviate discounts plaguing the Canadian oilpatch.

Enbridge president and CEO Al Monaco told analysts during an investor day presentation that the expansion of the company’s mainline, which moves 2.8 million barrels per day out of Western Canada, would relieve the pressure facing domestic producers amid oil discounts that hit $50 below WTI over the past month but have eased slightly in recent weeks.

“We think the system, given its scale and reach, can be a very big part of the solution going forward in this basin,” Monaco told investors.

Enbridge also announced plans to hike its dividend by 10 per cent to $2.95 per share annually, simplify its corporate structure and the way it raises funds through debt financing — a series of moves that were widely praised by analysts.

Gavin MacFarlane, Moody’s Investors Service’s senior vice-president and analyst, placed the company and all of its subsidiaries on review for a potential credit upgrade to reflect “the significant steps Enbridge has taken to simplify its corporate structure and reduce structural subordination and leverage.”

The Calgary-based pipeline operator aims to switch its main oil pipeline network from a system that currently operates as the spot market to one that is underpinned by long-term contracts beginning in 2021 in a move that’s expected to benefit both large and small oil producers.

“We did have as part of developing our approach, the smaller producer in mind. They do not have to sign up for 20 years,” said Enbridge executive vice-president and president of its liquids pipeline division, Guy Jarvis, declining to provide more details as negotiations are ongoing.

He also said there is broad support for a contracted system from a combination of Canadian oil producers and U.S. refiners.

“They’ve all made multi-billion investments and what we’re hearing strongly from them is they don’t want to have to deal with apportionment,” Jarvis said.

Enbridge has had to ration space on its mainline over the course of 2018 as more oil is currently being produced in Western Canada than can fit in the country’s export pipeline network.

They’ve all made multi-billion investments and what we’re hearing strongly from them is they don’t want to have to deal with apportionment

Guy Jarvis, Enbridge EVP

The issue has come into focus as oil companies sharply criticized the pipeline operator for the system’s inefficiencies and as wide differentials for Western Canada Select heavy oil reached record-setting US$50 per barrel discounts relative to West Texas Intermediate.

While differentials have since shrunk to the US$14 per barrel range, thanks in large part to the Alberta government’s move to force oil companies to curtail their production, domestic producers have continued to scale back spending.

Cenovus Energy Inc. announced a pared-back capital budget of between $1.2 billion and $1.4 billion on Tuesday.

Cenovus has said it won’t move forward with new oilsands projects until there is more pipeline capacity, and recently announced oil-by-rail deals to move 100,000 bpd from Alberta to the U.S. Gulf Coast over the course of the next year.

Similarly, Athabasca Oil Corp. announced it would lay off 25 per cent of its staff, reduce executive salaries and cut spending by 30 per cent from a planned $140 million in 2018 to between $95 million and $110 million in 2019.

The company also announced it had sold pipelines and an oil storage terminal to Enbridge for $265 million in a move that will improve the company’s liquidity.

There could be a more strategic reason for Enbridge to shift to a long-term contractual system for its mainline, IHS Markit vice-president North American crude oil markets Kevin Birn said.

If competing pipelines such as TransCanada Corp.’s Keystone XL or the federal government’s Trans Mountain expansion are built, there could be fewer barrels flowing through Enbridge’s system.

“We do have a scenario where we could move to a surplus of capacity,” Birn said.

In the meantime, while both the Keystone XL and Trans Mountain projects face delays, Enbridge is working to expand its system before either of them proceed to construction.

“We’re going as fast as we can,” Monaco said. “We understand the importance of capacity in the marketplace,” he said, noting the company has also embarked on a de-bottlenecking project designed to boost the capacity of the system by between 50,000 barrels per day and 100,000 bpd by the middle of 2019.

At the same time, the company said it is on track to complete its 370,000 bpd Line 3 replacement project by the end of 2019 and is looking at expanding other parts the system in coming years.

“They’ve been remarkable at squeezing more oil into the system,” Birn said of Enbridge, which intends to boost its mainline capacity by a total of 800,000 bpd over the next five years.

For Medicine Hat, three years of low prices and big losses were too much to ignore

Comments

Postmedia is pleased to bring you a new commenting experience. We are committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. We ask you to keep your comments relevant and respectful. Visit our community guidelines for more information.